Being short of funds in an emergency situation, or to pay the bill for significant events in your life (e.g. your wedding) can be discouraging.
For most people, borrowing from friends, family, or the bank are the only options they know. But, do you know you can also borrow from a licensed money lender?
If you have no clue about what a money lender is, or you have been considering one for some time, keep reading to find out what is a money lender, and everything you should know before and after borrowing from one.
What Is A Money Lender?
A money lender is one who is in the business of money lending. According to Singapore’s Moneylenders Act, a money lender can act as a principal lender or agent to a moneylending institution.
Money lenders lend small to moderate amounts of money to people at a higher interest rate than governmental financial institutions would charge.
They usually provide short-term loans to help individuals pay for situations such as a wedding, renovation, car purchase, vacation, or a business.
Nevertheless, not anyone can be a money lender, or act in a capacity as one. For a person to act as a money lender in Singapore, such an individual must be:
- A licensed money lender
- An exempt money lender, or
- An excluded money lender
Licensed money lenders are those who have been granted a license to operate as money lenders by the Registry of Moneylenders in Singapore.
An exempt money lender is one who, based on the government’s discretion, or subject to an exemption approval, is exempted from holding a moneylending license.
Whereas, excluded money lenders are persons such as pawn brokers that are permitted to, or not prohibited from lending money according to other laws other than the Moneylenders Act.
When borrowing from a money lender, it is advisable that you only borrow from a legal money lender in Singapore – those that are licensed to operate by law.
How To Know If A Money Lender Is Licensed
Because it is easy for anyone to call themselves money lenders in order to deceive innocent individuals, the Ministry of Law compiled a list of licensed money lenders in Singapore.
Before you take a loan from anyone who claims to be a money lender, do your due diligence to ensure that you can find the person’s company on that list.
In addition, licensed money lenders are not permitted to advertise their services via text or phone.
So, if you get a text, email or phone call from someone posing to be a money lender, there’s a high chance they aren’t licensed.
Money lenders can only advertise their services via:
- A registry of money lenders or a business or consumer directory
- Advertisements such as posters or banners placed on the side of the wall or window of their approved business place
- A website belonging to the licensed money lender
Regardless of whether a money lender is licensed, if it is displaying the following unacceptable behaviours, it would be best to desist from doing business with them.
- Using abusive language or threatening you in any manner
- Asking you for your Singpass ID or password
- Withholding your personal identity documents (e.g. NRIC, passport, driver’s license)
- Granting you a loan in a manner the Ministry of Law prohibits, such as through email, SMS or over the phone, before giving you the required documents (loan application form, income tax assessment, copy of a signed loan contract, etc)
- Asking you to sign on a blank or an incomplete Note of Contract for the loan
- Retaining a part of the principal loan amount
What To Consider Before Taking Up A Loan From A Money Lender
Before taking up a loan, here are a few things you should consider.
1. The Type Of Loan You Need
Money lenders offer different types of loans such as personal loans, car loans, wedding loans, business loans, etc.
Determining the type of loan you need is essential to finding the money lender with the best rate for that specific loan, as well as its repayment terms and your eligibility for said loan.
2. Confirm That You’re Dealing With A Licensed Money Lender
As we said earlier, only do business with money lenders that can be found on the Ministry of Law’s list of licensed money lenders.
3. The Terms Of The Loan
Ignorance is no excuse. You must ensure you understand the terms of the loan, including the interest rate, delayed repayment fees, administrative fees, and other fees attached.
In addition, be mindful of caveats such as using your property as collateral for the loan in the event you default.
If you don’t understand what some terms of the loan are, ask questions.
Read the terms over and over for proper understanding, or better yet, hire the services of a legal practitioner to help you understand the terms of the contract.
4. Your Ability To Pay
Very quickly, a lot of fees can pile up when you borrow from a licensed money lender.
As such, you want to ensure you can abide by the terms of the contract and have the ability to pay.
Failure to repay the loan when due might lead to late payment fees, or the sale of your property (if used as collateral) to repay the loan. The longer your loan repayments remain outstanding, the more your debt.
Also, if your property is used to settle the loan, be aware that if the sale of the property is less than or equivalent to the amount of the loan, you will get nothing, as the proceeds will be used to settle what you owe the licensed money lender.
As a rule of thumb, never borrow more than your ability to pay.
How Much Can You Borrow?
The loan amount you can obtain from a money lender depends on whether the loan is secured or not.
Secured loans require some form of collateral as a requirement for borrowing. If the borrower is unable to pay for the loan, the collateral is liquidated to settle the debt.
Unsecured loans do not require any form of collateral.
In Singapore, secured loans do not have a capped amount – you can borrow any amount you wish.
However, there is a limit for unsecured loans when borrowing from money lenders.
|Annual Income||Singapore Citizens and Permanent Residents||Foreign Residents|
|$10,000, but below $20,000||$3,000||$3,000|
|At least $20,000||Up to 6x of borrower’s monthly income||Up to 6x of borrower’s monthly income|
Interest Rates Charged By Money Lenders
Be aware that the maximum interest rate a money lender can charge for a loan (whether it is secured or not) is 4%.
In addition, late payment fees cannot exceed 4% of the amount due per month.
If you’re taking out a loan of $5,000, the interest rate per month on that loan will be $200. However, the interest rate will be charged on the outstanding loan balance. If you have paid $1,000 out of the $5,000, the interest per month will be charged on the $4,000 left.
For late payment interest, the interest is charged only on the amount that you were unable to pay on time.
If you repay a loan in $1,000 installments every month, and fail to pay for a particular month, a late payment fee will be charged on just the $1,000.
Keep in mind, however, that the late fee is capped at $60 per month of late payment.
Other fees that can be incurred when borrowing from a money lender are:
- Administrative fee: Not more than 10% of the loan principal
- Legal costs: Costs the money lender incurs to recover the loan
What Documents Do You Need To Apply For A Loan?
To apply for a loan from a licensed money lender, you’ll need to present the following documents.
- Proof of income and/or employment
- Proof of residency
- Credit score history
- Previous CPF statements
- Other documents such as Tenancy agreement, employment letter, income tax statements or bank statement (for foreigners)
You’ll also be required to complete a loan application form. This will likely require the following details from you:
- Legal full name
- Date of birth
- Personal identification number
- Phone number
- Email address (if any)
- Country of origin
- Residential address
- Loan amount
- Surety information (for secured loans)
A surety is a person standing as a guarantor for the loan, including repayment of the principal and fees if the borrower is unable to fulfil his obligation.
Note that for unsecured loans, money lenders might not require your credit score history.
They would rather focus on your proof of income or payslips that show your ability to repay the loan.
What To Do After The Loan Is Granted
After you apply for a loan, the money lender will review all your documents, and after reviewing your documents, grant or decline your loan application.
If your application is successful, and the loan is granted, here is what you should do after:
- Ensure the money lender gives you the correct loan principal (after deducting a maximum of 10% admin charges if required)
- Ensure you obtain and keep the following documents:
- A copy of the contract
- Receipts of all installments and interests paid
- A statement of account at least twice a year (January and July) to ensure everything is up to date and accurate
- Copies of other relevant documents
- Pay your loan installments on time to avoid late payment fees, which will lead to more debt.
What If You Can’t Repay The Loan?
Sometimes, life happens, and you may find yourself unable to pay the loan principal, including the interest and late payment fees.
In the event this happens, the money lender might hire a debt collector or debt recovery lawyer to obtain the loan.
On your part as a borrower, you can:
Ask For An Extension
Discuss with your money lender about extending the loan duration or other refinancing options. Note that these may incur additional fees.
Have this discussion before the next payment is due to avoid late payment fees.
File For Bankruptcy
When the debt amount is at least $15,000, and you cannot pay even after considering options such as an extension or loan restructuring, a filing for bankruptcy can be made.
This will stop the accumulation of interest, and any legal action from the money lender against you.
Consider The Debt Repayment Scheme
The Debt Repayment Scheme (DRS) is a feasible option for loans not above $150,000 that doesn’t require you to file for bankruptcy.
The debtor is assisted by the Ministry of Law Solvency offer to work out a repayment schedule for the debt over a period of time.
For unsecured loans, this prevents the money lender from taking legal action against the borrower, unless permitted by the court.
Lodging A Complaint Against A Money Lender
Licensed money lender harassment or threats against a defaulting borrower is not permitted by the laws of the Registry of Moneylenders.
If you find yourself in a situation where you’re being harassed or threatened because of your inability to repay your loan, you can:
- Call the Registry at 1800-2255-529 to file a complaint, or
- Submitting an online form about your complaint on the Registry’s website. Choose “Registry of Moneylenders” as the primary category and “Feedback & Complaints” as the subcategory
Ensure you provide detailed information when you file a complaint, including the name of the money lender, contact information and license details.
The Registry might also invite you to have an interview with its officers to obtain more information.
Obtaining loans from money lenders can be a hassle- and risk-free process if you do your due diligence to obtain the right information before you apply, and commit to repaying the loan once granted.